Credit card statements are necessary to prepare your taxes. They have a record of items that were purchased with the credit card some of which may be tax-deductible on your tax returns.
There is a belief that you deduct your purchases as you pay off your credit card: This belief is incorrect. When you put a purchase on a credit card, the date you put it on it counts as the date of purchase. In essence, you’ve taken a loan from the credit card company. As such for purposes of recording the transaction for tax purposes (for most taxpayers who are on the cash basis), the date you put this purchase on your credit card counts as the date you record it for tax purposes. Whether you pay the full amount of the purchase that month or not doesn’t matter. The full amount of the purchase is reflected on the date of the purchase and thus will be included in the year of the purchase.
There are two distinct but similar-name concepts here: “paid for” (in relation to a expense) and “paid off” (in relation to a debt). These both occur in the case you describe:
- First, you pay for the expense, using credit.
- Then, you pay off the debt incurred.
As a cash basis taxpayer, you can deduct the expense when you paid for the expense, not when you eventually pay off any resulting debt arising from paying for the expense.
There is a notion that all you need for an audit is a credit card statement. According to this theory, no other receipt is necessary. This belief may not be true. Credit cards are not necessarily accepted as receipts. At an audit, one should provide two sides for most deductible expense transactions: a) record of payment and b) receipt for payment.
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This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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